Volatility, Factors, And Profiting Explained And Demystified

What Is Volatility?

Volatility is the frequent and large upward or downward movement in prices and value of cryptocurrencies.

Even Bitcoin the first cryptocurrency to be created is extremely volatile.

In October 2017 and December 2018, Bitcoin hit record highs of $20,089 at that time. During this period, the cryptocurrency’s volatility neared 8%.

Other asset classes have significantly lower levels of volatility in general.

CBOE Volatility Index, also called VIX is used to measure the volatility in most conventional assets.

But in the case of BTC, a unique method is used – called the Volatility Index of Bitcoin to track the volatility of this popular cryptocurrency.

The increase in the volatility of cryptocurrencies happens as a result of several factors.

A great impact over the volatility of cryptocurrencies is emanated by the regulatory news i.e. announcements by the U.S. Securities and Exchange Commission. Especially if there are fears that the ability to mine or own Bitcoin may be reduced drastically.

Geopolitical news can also be sensitive to cryptocurrency values.

In 2020, this was the case with Bitcoin trading, and its price increase, and this was widely linked to COVID-19. Like gold, the cryptocurrency appeared to act as a highly profitable asset and an attractive alternative to cash.

Volatility 2

Billions of dollars into the economies were poured in by the Central banks across the world to prevent them from collapsing on the back of COVID-19. Another factor that attracts people to Bitcoin is the fact that it has a fixed supply of 21 million.

Something worthy of consideration is the voice of Crypto enthusiasts announcing that government spending will fuel inflation in the future, and cryptocurrencies can help protect against this risk.

What Factors Drive Volatility In Cryptocurrencies?
The Early Stage of Establishment on the Market

Gaining rapid popularity and attention as well fuelling quick disappointment among certain investors especially because of the volatility and instability of cryptocurrencies at the end of the day is still an emerging market. When compared to traditional currencies, or even gold this market is still minute despite all the media attention it gets daily. In general, this means and can lead to high changes in values and prices that can be as a result of influence by smaller forces i.e. several people holders of large amounts of crypto coins. The values can be impacted even if they sell Bitcoins only, it would be enough to crash the whole market.


Speculation is the fuel that drives the cryptocurrency market. To make profits investors bet whether the prices would go up or down. Eventually, a sudden influx or outgo of money happens, leading to high volatility.

Digital Asset

With no backing of any tangible or intangible asset, commodity, or currency, most cryptocurrencies, including Bitcoin and Ether, are purely digital assets meaning that their price is determined entirely by the laws of supply and demand. The fluctuation in demand or supply is due to the absence of any other stabilizing factor, like government backing, etc.

Technology in Development

Over a decade has already passed since the Bitcoin idea was first proposed and the blockchain or other alternative technologies on which these coins function are still evolving. One serious issue is the so cold sudden downward pressure i.e. the scalability problem – not validated smart contract within the prescribed timeframe.

Inconsistent Investors

This market is not seen as needing expertise which is the total opposite of real estate or the stock market. So mostly part-timers are investing in it making a profit out of the volatility. Quick gains are what they pursuit,  but sometimes when that does not happen, they lose patience and withdraw from it. Which if it happens frequently (involvement and withdrawal) can also cause and lead to volatility of any cryptocurrency.

How to profit from cryptocurrencies’ volatility?
Short term investment for profiting

For instance, Bitcoin continues to demonstrate signs of high volatility. It fluctuated from a price of $18,000 to a new historical high of about $64,863. Eventually, pulling back to the current level of $42,368.

So this difference demonstrates that the pioneer cryptocurrency can deliver significant short-term profits. The hidden devil here is not to fool yourself into betting on it in the long term.

These high differences in price are the profit spot for any investor. It is good to follow the patterns of ups and downs and invest when it is low in price and certainly sell at the right time when prices go up.

Trade the volatility

Characterized by a series of pullbacks and rebounds that completed the cycle in a higher position than the one before the pullback Bitcoin showed extreme volatility. Read our latest news on Bitcoin Price Drops $4k as China Intensifies Anti-Crypto Campaign. You can also discover more from our latest post in the wiki section about High Volatility Cryptocurrencies. In continuation to the topic, things appear to have slowed significantly since April when it hit the current historical highs. Highly volatile cryptocurrencies open up short-term trading opportunities.

However, the success rate in short-term trading is very low and it is one of the riskiest strategies. Hence, unless you are an expert, it is better to buy and hold for the long term.

Buying stocks and bonds is less risky than investing in cryptocurrencies. So if you add this risk to the risk of short-term trading, it leaves less room for profitable wins. This is why you should consider attentively when investing short term.

Invest and hold long term

Buying and holding is the winning game especially when it comes to cryptocurrencies. Most experts use exactly this strategy. The level of volatility means that you could buy cryptocurrencies with a view of selling when it hits a certain price level. However, it is hard to determine a time frame on when you plan to sell. Maybe only as a day trader that has no interest in owning crypto.

The benefits of holding indefinitely are visible if you consider those who invested years ago how much the prices went up. These investors have managed to ride out all those pullbacks. So, patience is the key factor here. Some experts predict bitcoin to trade in the region of $100,000 at some point shortly. This is highly unpredictable when it will happen, even though it is almost certain to happen. It is the indefinite wait that wins high gains here.

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